European stocks rise as PMIs strengthen ECB easing case

Orion rallies after Bayer partnership

LONDON (MarketWatch) — European stock markets moved mostly higher on Monday after softer-than-expected euro-zone manufacturing data and weak German inflation numbers added to expectations the European Central Bank will launch easing measures at its meeting on Thursday.

The Stoxx Europe 600 index
SXXP, +0.03%
gained 0.2% to end at 345.08, after closing with a seventh straight weekly rise on Friday.

Europe’s week ahead: ECB action expected

(3:21)

The ECB is widely expected to launch a package of easing measures next week, but a question remains: what kind?

Topping the list of gainers in Monday’s trade, shares of Orion Oyj
ORNBV, +0.03%
rallied 15% after the Finnish drug maker lifted its full-year earnings guidance, as it struck a deal with German peer Bayer AG
BAYN, -1.06%
to develop a prostate cancer drug.

On a sector basis, mining firms helped lift the pan-European benchmark after China’s official manufacturing Purchasing Managers Index rose to 50.8 in May, compared with 50.4 in April. Analysts polled by Dow Jones expected the PMI to come in at 50.6. A reading above 50 signals expansion.

PMIs maintain pressure on ECB to act

PMIs were also in focus in Europe, where the final readings for May were released. For the euro zone, the data showed the region’s manufacturing sector expanded at a slower pace than initially thought, with the PMI coming in at 52.2, down from the flash estimate of 52.5.

Howard Archer, chief U.K. and European economist at IHS Global Insight, said in a note the data highlight “that the euro zone is still finding it a struggle to really develop growth momentum.”

The numbers therefore, Archer noted, reinforce the view that the ECB will deliver a package of easing measures at its meeting on Thursday, including liquidity measures and a cut to interest rates.

“If the ECB fails to deliver, having built up expectations, it risks upsetting the markets and also denting its credibility,” he said.

ECB President Mario Draghi said in May that the Governing Council would be “comfortable” with easing monetary policy in June, triggering a selloff in the euro
EURUSD, -0.0364%
The shared currency traded fractionally below $1.40 ahead of his comments, but has since fallen considerably and traded at $1.3602 on Monday.

“The ECB would undoubtedly like to see it head down further. It needs to impress the markets for this to happen,” Archer said.

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